In this article, we’ll explore what an order management system in finance is. The term has a common acronym, “OMS”, and exists in many industries. In this article, we focus on what a financial order management system is. We explore common and frontier capabilities and address misconceptions about what a buy-side OMS is and isn’t.
The OMS Software serves as the spider in the web of a company’s workflows, as it’s the system that connects all processes intraday:
In recent years, system landscapes have broadened. We created Limina to cover all workflows from order raising (rebalancing to model, benchmark and fast order entry) to shadow accounting (NAV and reconciliation) in one system – with smooth workflows and exception-based automation.
The best order management systems cover, at a minimum, the following capabilities:
Other systems adjacent to an investment manager’s workflow include portfolio management software (PMS) and execution management software. In the below illustration, we highlight the most common types of systems and where they typically fit in a target operating model of an investment manager. Each of the 5 columns represents an operating model; the blue is where Limina normally serves in each model.
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Order management system features sometimes include portfolio modelling capabilities that help portfolio managers assess the impact of potential trades on their portfolios. They can simulate different scenarios, analyse the effect on exposures (absolute and relative to benchmarks), and rebalance portfolios to align with investment objectives.
This functionality was historically part of a separate system, a PMS. You might have noticed it’s similar to the order generation functionality mentioned above. In reality, the line between an OMS and PMS has blurred, and many of these systems have turned into a combined Portfolio Management Software to create a Portfolio and Order Management System (POMS) regardless of where they started.
Features of order management systems can also include execution (an Execution Management System, or EMS for short). The simplest way to tell which functionality resides in which system is to consider who uses which:
The portfolio manager and trader can be the same physical person for small investment teams, wearing two hats.
An EMS is designed primarily for what happens once orders are ready to be executed in the market. It offers access to real-time market data (often including order depth information) and connectivity trading venues.
As with PMS and OMS, there has been a trend towards merging OMS and EMS into one solution, an OEMS. The OEMS has value for simple trading requirements, such as liquid equities or derivatives. For other asset classes, such as fund of funds or fixed income, the EMS either isn’t needed (fund of funds) or is a very specialised system (fixed income) and a combination of OMS and EMS makes less sense.
Integrated Order Management Systems means an OMS part of a broader system. As we can see from the system landscape illustration above, an OMS can be part of a front-to-mid or front-to-back office system. The top benefits of order management system being part of a wider system include:
Limina’s investment management system can cover all your system needs. It goes beyond system functionality to include automation capabilities as well. See it for yourself and book a no-strings-attached demo today.
Modern OMSs should support all asset classes, surpassing their historical focus as equity order management systems. The best OMS allows investment managers to trade across different asset types, such as equities, fixed income, derivatives, alternatives, and more.
The reason why is that few managers hold only one asset class. Even the simplest equity portfolios often contain at least FX and sometimes cash equivalents. Most managers will have multi-asset portfolios. Even if you don’t manage multi-asset portfolios today – you might in the future.
An OMS must cover entire portfolios; it’s not a good idea to have two OMSs cover different parts of a portfolio (e.g. one for fixed-income and one for equity) because cash and compliance is overarching to the entire portfolio. You’re creating a synchronisation nightmare by using multiple OMSs.
For these reasons, we firmly believe that all OMS vendors of the future will provide cross-asset capabilities in one system. The top order management systems already do, and those that can’t keep up eventually die out. Next, let’s look at the capabilities that an OMS needs, specific to some select asset classes.
Using FIX, an order management system can connect electronically for equity execution to brokers, EMSs or outsourced trading desks.
Cash calculations for equities include adding transaction fees such as commissions and taxes. The OMS enables straight-through processing via matching or automated trade affirmation and trade reconciliation.
An OMS for stock swaps needs additional capabilities on top of cash equity. There are two main additions:
Equity swaps support is a crucial capability for hedge fund order management systems.
A fixed-income OMS differs from equities mainly because liquidity might affect which bond gets bought. Either, the OMS become more of an optimiser that looks at the characteristics of bonds to be bought. Alternatively, the OMS must be closer to the markets, being an OEMS supporting RFQ workflows.
Order management software for fund of funds includes complex rebalancing, with feature such as look-through and timing settlement and exposure in time (due to settlement cycles being different on sell/buy and between different funds). Electronic trading is not standardised, even over FIX, so each connection is bespoke.
Limina support many fund of funds investment managers; please feel free to reach out to learn more how.
There are multiple different types of order management systems. In our opinion, the top OMS providers offer the following benefits: